Aoyama Sogo Accounting Firm

Innovation Speed Quality

NewsLetterC h a i r m a n ’ s

Vol.29 12/ 22/ 2023

C o l u m n

Thank you to everyone in 2023 andlooking ahead to the New Year2023 is coming to a close and the new year is justaround the corner. First and foremost, we would like tosincerely thank our clients for your business. Our firmhas been busy ensuring compliance with the invoicesystem since October and preparing for next year’s
electronic record retention law. This year’s AUA (assetsunder administration) which is the total of our client’s
SPC assets was about 2.88 trillion yen as of October
2023. Similar to the AUM of real estate firms, our firm’s
increasing AUA contributes to the trust and stability ofour firm. We hope to continue this upward trend.
In the second half of 2023, we faced staffing issues
which led us to turn down new work. ASA’s mission is tobe a firm that’s needed by society, and to that end, weare in the process of building a fund administration
platform. We will continue with our efforts to increase
our capacity and become a more sustainable andresilient organization. We have also added a regional
office and are adding new staff members.
This year, in addition to our Fukuoka and Kobe offices,
we opened a Wakayama office. We have hired many
talented employees from other countries as well.

Our DIG (Digital Innovation Group) which leads ourDX efforts, currently has 9 people. Our SDG plan which
will streamline the process of entering PM data into
accounting systems looks to officially start next year.
Along with improving our systems, we would like ourdirectors and employees to continue learning. Although
this may be a long process, we want to support ouremployees’ reskilling efforts. As we grow older, we may
become easily tired and lose endurance, but we do still
have our minds. Personally, I will spend New Years Day
eating something hearty and exercise. I wish everyone a
joyous holiday season and a happy New Year.
by Kazuhiro Matsuzawa, Chairman

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Aoyama Sogo Accounting Firm

Innovation Speed QualityNewsLetterJ a p a nR e a lVol.29 12/ 22/ 2023

E s t a t e

CASBEE – Green Building
Certification in Japan
According to JLL’s 2023 Winter “Sustainability MarketSummary”, total acquisitions of CASBEE – Real Estate
had climbed to 1,285 properties. Compared to the samequarter last year, there was an increase of 146
properties (+10.6%).
I am sure many of you have already heard the term
CASBEE, but what exactly is it?
According to Wikipedia’s definition, “CASBEE(Comprehensive Assessment System for Building
Environmental Efficiency) is an environmental
performance assessment system for buildings
developed in 2001 by a committee established within
the Institute for Building Environment and Energy
Conservation, led by the Ministry of Land, Infrastructure,Transport and Tourism. The system is continually beingimproved. It is used to objectively evaluate and disclose
the performance of buildings by considering their global
and local environmental impact, operating cost
efficiency, and user-friendliness. Assessments include
both new and existing buildings in Japan.”Globally, there are assessment systems like England’s
BREEAM and the U.S.’s LEED. CASBEE was subsequently
developed after these systems.
Let’s take a further look into “CASBEE- Real Estate”
which has significantly grown recently.
According to the website for Institute for Built
Environment and Carbon Neutrality, “CASBEE-Real
Estate (previously: CASBEE Real Estate Marketexpansion) is the result of a building’s environmental

Nihonbashi Takashimaya Mitsui Building

assessment under CASBEE, developed for use in realestate assessments. The assessment standards weredeveloped by narrowing down categories to only thosewith strong correlation to real estate assessments, sothat they can be utilized by users in real estatedevelopment and deals.”
While CASBEE-Building (New construction) is primarily
used as a tool for design support and administrative
assistance, CASBEE-Real Estate is primarily used bymarket professionals as a branding tool for simple
short-term assessments of existing properties.
Since green building certifications are becoming
essential under GRESB, it’s expected that CASBEE
certifications will continue to increase as well.
by Shigeru Hirai, Client Relations GroupⒸDbox for Mori Building Co.
Copyright(c)2021 Aoyama Sogo Accounting Firm Co., Ltd. All rights reserved.

Aoyama Sogo Accounting FirmInnovation Speed Quality

NewsLetter
E S G

Vol.29 12/ 22/ 2023

R e p o r t i n g

Application of SASB Standards(Part 2 of 2)

A key point to remember is that the topic of water
management may be more critical to one industry thananother.

In the first part (October volume), we highlighted thekey points of the SASB standards. In Part 2, we look at
how water management metrics can potentially havedirect financial impacts.
For many industries including beverage
manufacturers like the Coca-Cola Company, water is a
critical input in production. The withdrawal andefficient use in its production can have material impact
on its financial performance and condition.
Metrics such as total water withdrawal andconsumption and % from regions with high baselinewater stress are often reported in sustainability reports.
Such non-financial disclosures inform investors andother stakeholders about the company’s operationalrisks which can have direct financial impacts.

Another industry that is known for high water use iselectric utilities and power generation companies. In
addition to metrics such as water-use efficiency, newsites that are excavated need to be considered for its
impact on the environment and biodiversity.
For companies that are just starting their ESG
disclosures, it may be best to use industry leaders as abenchmark. In addition, the company may find thatsoftware providers and data aggregators are beneficial
to collect quantitative information.
ASA is also keeping a close eye on this field as ESG
disclosure becomes even more defined and regulated.
We are happy to hear from you on ways we can assist
with your ESG disclosure journey.
by Yuichi Totani, Client Relations GroupCrucial input in productionwater(Source: Coca-Cola HBC)

Coca-Cola Company
Sustainability Report
SASB (metrics)• Total water
withdrawn/consumed• % from regions withhigh baseline waterstress

Financial statement impact
Potential FS impact• Scarce water supply can potentially lead toless production and less sales• Scarce water supply can lead to increased
costs and less profit.
• Improved water efficiency can lead to lower
costs and greater profit.

Profit and Loss
Statement
Sales(COGS/expenses)
ProfitSara Cultural Centre (Photo: Jonas Westling)
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Aoyama Sogo Accounting Firm

Innovation Speed Quality

NewsLetterA c c o u n t i n gVol.29 12/ 22/ 2023

U p d a t e

Outline and impact of the Draft
Revised Lease Accounting Standard
In May of this year, the ASBJ (Accounting Standards
Board of Japan) released a draft revision of the leaseaccounting standards. To align with international
accounting standards, the ASBJ announced the draft
revision, which is based on IFRS 16, specificallydeveloping standards for recognition of assets/liabilitiesin lease transactions.
An outline and impact of the draft revision is explained
below.
1. Outline of accounting standards[1] Basic policy for development
Under IFRS 16, the distinction between finance andoperating leases will be removed under the lessee’s
accounting treatment, and non-cancellable leasetransactions shall be recorded as right-of-use assets.
The draft revision likewise requires that all leasetransactions (including those previously recognized asoperating leases) be recorded as an asset/liability
for the lessee. The draft revision does not incorporate
all provisions of IFRS 16, but instead simplifies andmakes them useful as an alternative treatment and fortransitional purposes (lease accounting standard B12).
In addition, it was determined that basic principles andpolicies for the treatment under consolidated financials
and separate financials would remain the same.
Therefore, the draft revision would apply the same
treatment for separate financials (lease accountingstandards B17).
[2] Applicable period
As stated below, the draft revision states that thestandards be applied after roughly 2 years of thepublication. Early application is acceptable.
In conjunction, the application of the previous
accounting standards (Accounting standard No.13“Accounting standard for lease transactions” andCorporate accounting standards guidance No.16“Accounting standards guidance for lease transactions”)
will end.
The revised standard is expected to be applicable 2years after publication from the first day of the fiscal
year beginning on April 1 and afterward. The reason forallowing a 2-year grace period for companies is reduce
the administrative burden that includes identification ofleases, consideration of new practices, and otherpreparations.
continues on next page

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Aoyama Sogo Accounting Firm

Innovation Speed QualityNewsLetterA c c o u n t i n g

Vol.29 12/ 22/ 2023

U p d a t e(continued)
Draft Revised Lease Accounting Standard
2. Impact of the draft lease accounting standard
Under the draft revision’s right-of-use model, the scopeof accounts to be recorded on the balance sheet will
expand. The following accounts will likely be impacted.
① Both right-of-use assets and lease obligations will
be recorded on the balance sheet, which worsens
metrics like debt ratio and equity ratio.
② Right-of-use assets are recorded with the straightline method, while interest expense on leaseobligations are recorded with the interest method.
In the beginning, interest expenses will be relatively
large corresponding to the large lease obligation
amount. Thus, in the initial phase, compared towhen lease transactions occur, lease-related
expenses will be quite large. In addition, theinterest equivalent amount of leasing cost that waspreviously included in manufacturing cost andSG&A expense would now be recorded as a nonoperating expense and thus impact profit/loss
subtotals.

③ Right-of-use assets are subject to impairment, thus
the scope of assets subject to impairment may
expand. Particularly for retailers that leasestorefronts, this may have a dramatic effect onfinancials. Under the draft lease accounting revision,
rental payments which were previously recorded asexpenses, will be recorded as right-of-use assets on
the balance sheet.
④ As of this moment, the start date of the draft
revision is still pending. Hypothetically, if the new
accounting standard is published by March-end
2024, companies with March FYE will be impacted
from the first day of the fiscal year that begins April
1, 2026. Thus, it is crucial that lease contracts areproperly identified, and systems are ready by thistime.

by Hiroki Yaguchi, Knowledge Group

Copyright(c)2021 Aoyama Sogo Accounting Firm Co., Ltd. All rights reserved.

Aoyama Sogo Accounting Firm

Innovation Speed QualityNewsLetterE d i t o r ’ s

Vol.29 12/ 22/ 2023

A f t e r w o r dFor this year’s one word Kanji, “Tax” was chosen. For
many taxpayers and accounting firms, the invoicesystem and electronic record retention law will begin totake full effect starting next year, which could
potentially cause headaches and confusion. In othernews in Japan, the logistics and shipping industry is said
to face an oncoming “2024 problem”. The U.S. has
stopped further interest rate hikes as of now, and weshall see where the economy heads.

“税” (Tax)With so much bad news grabbing the headlines, thenews of Shohei Otani becoming a Dodger was exciting
and uplifting. I am sure there will be many things that
happen next year as well, but it’s best to stay even-keel
and not get too high on the highs and low on the lows.
This month’s volume will be the last for the year. We
will start again in February.
Stay warm and we hope you have a wonderful NewYear!
by Jun Murata, Corporate Officer

Copyright(c)2021 Aoyama Sogo Accounting Firm Co., Ltd. All rights reserved.